Franchise business to acquire a second location

Latest Any Answers

My client is operating a business under a franchise. He has just acquired one location and now his offer has been accepted for a new location. So he would have two 'branches'.

He is running the business under a limited company. My initial advice to him is to keep both businesses under one company and one bank account (also one VAT number): in our accounting system we can track the individual businesses. The franchisor has advised that he should open a new limited company for the new venture, as if one of the ventures were to fail, the other one would not be affected, as it would be under a different company.

Before going into second franchise advisable to be CERTAIN that first franchise really is profitable. If first franchise IS certainly profitable, then consider likely trading results on second prospective franchise. If all capital has been used up acquiring first franchise then the second one will likely need to incur interest charges on borrowing. Factor these costs into projections for second franchise - will it be profiable?

If second franchise makes a loss can NOT offset against profits of first franchise for Corporation Tax purposes UNLESS in same Ltd Co or in a GROUP situation.

If profits in any one franchise likely to exceed £150,000 pa. then likely to incur the higher marginal rates of CT if in two separate Ltd Co.s.

Thanks a lot for the responses - Euan, i don't think the franchisor gets more, they are merely suggesting this arrangement as - in their opinion - the optimal one. Group idea is excellent, thank you DMGbus, I will consider this option.